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McKinsey: Is East Africa Positioned to Become a Bigger Garment Manufacturing Player?

The recent renewal of the African Growth and Opportunity Act (AGOA) has further fueled talk about East Africa as the next big sourcing hub, but what remains to be seen is how well positioned the region is to receive an influx of apparel sourcing.

In a recent McKinsey & Company report titled, “East Africa: The next hub for apparel sourcing?” analysts said ever since European retailers like H&M, Primark and Tesco started sourcing garments in Ethiopia two years back, the apparel sector started paying attention and interest in Ethiopia and the East Africa region has been steadily on the rise.

So what is the region’s real promise?

First, the sizeable labor pool and its potential to grow are part of East Africa’s allure.

Sub-Saharan Africa is expected to enjoy the highest growth in working-age people over the next 20 years, according to United Nations projections—and by 2035, the working-age population will be the same size as China’s today.

According to the report, within Sub-Saharan Africa, the East African nations that apparel buyers are most interested are Ethiopia and Kenya, and to a somewhat lesser extent, Uganda and Tanzania.


Apparel buyers have turned to Ethiopia for sourcing basic, large-volume items. T-shirts made up 46 percent of the country’s exports to the EU and trousers 31 percent. As much as 60 percent of Ethiopia’s exports are destined for Germany and 10 percent for the U.S, but what Ethiopia exports in apparel only accounts for 0.01% of total apparel exports, according to the World Trade Organization.

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And the explanation for the interest despite that information came down to one thing: cost.

Garment workers in Ethiopia earn less than $60 a month, according to McKinsey, one of the lowest wages paid globally. Work permits there cost one-tenth that of neighboring Kenya, and electricity prices are low.

“Ethiopia could someday become a source of raw materials: it has more than 3.2 million hectares of land with a suitable climate for cotton cultivation. Yet, barely 7 percent of that land is being used today,” the report noted.

That coupled with planning errors and low crop yields has meant the country has had to import cotton, and with social compliance a prevalent issue, land-grabbing accusations are just one setback that has caused cotton cultivation there to suffer.

Production efficiency is also low at roughly 40 to 50 percent, and 80 percent of those surveyed named that as a challenge to Ethiopia’s growth in apparel sourcing.


Kenya also supplies bulk basics like trousers in high volumes. The country’s typical minimum order size is 10,000 pieces while larger apparel players there have minimum order sizes between 25,000 and 50,000 pieces.

“Kenya has benefited greatly from AGOA—92 percent of its apparel exports in 2013 went to the United States,” the report noted, citing UN Comtrade. “Suppliers we interviewed said the EU’s Economic Partnership Agreement isn’t as much of an incentive: the overall duty-free advantage is less than that of AGOA, and the competition with low-cost Asian countries is stiff, as they too are benefiting from preferential agreements with the European Union.”

Some Kenyan manufacturers expressed, however, that they aren’t eager to do bigger business in Europe as the buyers, according to their perceptions, are more demanding in terms of lead times, order size and quality.

Foreign direct investment from Asia and the Middle East, as well as Export Processing Zones developed by the Kenyan government have fueled capacity in Kenya’s garment factories in recent years. Factories are now larger and more efficient with an average of 1,500 employees compared to roughly 560 in 2000.

But the fact that manufacturers have to import fabrics means lead times are long (it can take up to 40 days for overseas fabrics to travel, make it through customs and arrive at the garment factory). Labor costs are comparatively high with workers bringing in $120 and $150 each month, and energy costs are high too.

Compliance would also need to be addressed in Kenya before business really picks up there. Those surveyed said corruption, high crime rates and poor social compliance are among their biggest challenges.

“If East Africa is to experience sustainable growth in garment manufacturing, collaboration among all stakeholders is a must,” the report noted. “All parties will need to make every effort to ensure social and environmental compliance. Buyers, for their part, would do well to support the capability-building efforts of East African suppliers and begin to evaluate the region as a true strategic option rather than just a testing ground.”

Despite East Africa’s potential, Bangladesh is still the top future sourcing spot—when asked which countries would be the top three sourcing destinations in the next five years, 48 percent of respondents pointed to Bangladesh, then Vietnam (33 percent) and India (30 percent).